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Procter & Gamble commits to Russia despite rising risks

FILE PHOTO: The logo of Dow Jones Industrial Average stock market index listed company Procter & Gamble (PG) is seen on a tube of toothpaste in Los Angeles, California, United States, April 25, 2016. REUTERS/Lucy Nicholson/File Photo

By Olesya Astakhova and Maria Kiselyova

MOSCOW (Reuters) - U.S. consumer goods group Procter & Gamble (P&G) (PG.N) will keep investing in Russian plants in 2018 and beyond, reaffirming its commitment to the market despite political risks.

Relations between Moscow and Washington are at their lowest since the Cold War due to alleged Russian meddling in the 2016 U.S. elections and Russia's annexation of Crimea four years ago.

The maker of Tide detergent and Gillette razors plans to invest around $50 million (37.4 million pounds) in its two plants in 2018, Sotirios Marinidis, P&G's head for Eastern Europe and Central Asia, said.

"We are committed to the market, we are committed to the Russian consumers. Until today we have invested roughly $800 million and counting," Marinidis told Reuters.

"I think that's in the interest of both the U.S. and Russia to continue to have good business relationships going forward. That's all I can hope for and if something different happens, we need to deal with it," he said in an interview.

Russia's lower house of parliament this week approved a bill that would give the government authority to ban trade in certain items with countries deemed to be unfriendly to Moscow, in response to a new round of U.S. sanctions.

Lawmakers are also debating legislation that would make it a crime for a Russian citizen to comply with the U.S. measures.

Marinidis said he hoped the situation would not deteriorate to the point where P&G cannot serve consumers.

CHALLENGING MARKET

The environment has worsened since 2014 when the rouble tumbled due to sanctions and a drop in oil prices, raising the cost of imported goods and turning Russian consumers into bargain hunters.

"It's a very challenging market... 60 to 80 percent of everything sold is sold on promotion and up to 40 percent discounts," Marinidis said.

As a result, P&G has increased local production and has been exploring savings elsewhere to avoid passing higher raw material costs onto consumers.

The lion's share of the new, 3 billion rouble ($50 million) investment would be in a new distribution centre at the Novomoskovsk plant, south of Moscow, to improve supply chain efficiency, Marinidis said.

P&G also plans to modernise production lines at its Gillette plant in St Petersburg and expand its capacity by 25 percent.

In 2016-2017, it invested a combined 6 billion roubles in the two plants and Marinidis said half of everything P&G was selling in Russia was now produced locally.

"What is hurting structurally our business is the rouble volatility," he said.